Gold is more resilient than last week predicted

Gold is more resilient than imagined

While the direct price action caught the attention of the press, the spot price of gold fell from $ 1,800 on Friday to the bottom of $ 1.691, but the decline was only 1.1%, which gives a more favorable context. It is unclear what happened, but the move coincided with the rise in Treasury bonds, and the general market sentiment is that it was a move from gold to US bonds by a single fund. Negative nominal interest rates in a number of countries, especially in Europe, mean that US bonds have been in demand lately, even though the yield on 10-year bonds is below 1.5%.

The physical gold market revived in response to falling prices as Shanghai switched to a $ 10 premium over London, and interest increased in both India and GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia). Arabia and other UAE countries). Some parts of the Far East are also more lively, although due to the impact of the pandemic, some regions are still under quarantine. At the time of writing, gold is up to $ 1.778, retracing more than 80% of its decline.

It will be interesting to see what the CFTC COMEX position data shows us during the recovery week. What we saw after the fall in prices was instructive. The CFTC reporting week ends at the close of business on Tuesdays, so market activity based on last week’s data clearly reflects what happened during and after the price drop.

Naturally, stop loss and impulse trades should have been triggered. Gold contracts were down 65 tons long, the equivalent of 16% of the previous week’s outstanding position, while short were up 104 tons, or 78% from the previous week. Current net positions are just 110 tonnes in gold, the lowest since March, and 2,070 tonnes in silver, the lowest since May 2020.

Silver position was similar: long liquid positions or 863 tons (8%), while short positions rose 1.465 tons or 37%. Silver fell 11%, from $ 25.50 to $ 22.63, but while gold recovered much of the decline, silver only recovered 34%. Silver’s industrial base currently has more impact than its link to gold as markets are concerned about the spread of the delta variant of the virus. As noted above, markets are now also starting to think that the Fed will postpone the cut, or at least not accelerate it. Last Friday, the University of Michigan Consumer Survey, one of the most influential elements of US economic factors, was published, which turned out to be well below forecasts: the index of current conditions fell to 77.9 from 84.5 in July, and the index of expectations to 65.2 from 79. , 0. The annual inflation rate was 4.6%, while the five-year forecast was 3.0%.

In addition, the bond market suggests that markets are optimistic about the outlook for inflation, as break-even inflation in ten years is below the five-year rate of 2.36% and 2.50%, respectively.

Gold positions in the Managed Money category on COMEX
Gold and the S&P 500
Price dynamics table for precious metals and S&P 500
Posted by Rona O’Connell Aug 16, 2021 | Translation: Gold Reserve

Leave a Comment